Social Security

Imagine you worked all your life at the Bethlehem steel factory right here in PA, which until recently was one of the biggest steel manufacturers in the world. Now imagine that you are retired, you get a nice pension, you have full benefits, and on top of all that you get your social security check. Or should I say you did. Just last year Bethlehem steel came out of bankruptcy court and the government allowed them to no longer have to pay their pension or medical benefits in order to stay afloat. Thank god you have your social security check coming or you would be out on the street. But what if it was the year 2050 and social security was bankrupt. What would you do then? The U.S. government is in debt, the trade deficit keeps increasing, so how can we as tax paying citizens be confident that when we are ready to retire we will all get paid the full benefits that are promised today. To understand the issues surrounding the heated debate over social security we must look at all the history and facts concerning the current system, understand that the system must be changed to benefit our economy, and look at the solutions proposed by the Democrats and Republicans to see that privatized accounts are the only feasible choice for social security reform.

Social Security was created in 1935 by Theodore Roosevelt after the Great Depression. It was an attempt to bring back confidence in the American public that their future was secure by creating a safety net. Its main objective was to protect the elderly from poverty and social security may have done more to help the poor than any other government program in American history, reducing old age poverty from 50% in the 1930s to around 10% today. It uses a heavily skewed benefit formula that pays lower income workers a higher percentage of their earnings before retirement (around 60%) and higher income workers only get about 30% of their earnings. (Porter) So it basically distributes wealth from the rich to the poor and can be considered a tool of social policy and not just a retirement plan. Porter also states that social security aims to protect women who stay at home to raise their kids by offering them their husbands' benefits from working and survivor benefits in case of their husband's death. Also, the program's disability insurance favors workers in the tougher low income jobs.

On the outside it may sound like social security is very progressive and was a great idea but today it has many problems and the whole thing is in danger of collapsing.

Social security is definitely not perfect and although it seems to favor the poor the nation's changing demographics have overridden the system's original purpose of favoring the poor. The system is more generous to people who have more time to collect benefits. So those with higher life expectancies will be the biggest beneficiaries after retirement. Statistically the average black male will only live to 65 so that tells us that almost half of all African American males in this country will not collect a penny of social security but will pay a percentage of their pay check to social security throughout their lifetime. (Johnston)

Obviously this poses a large problem of fairness in a so-called progressive program. According to Johnston, another issue linked to this is the life expectancy of those people with high school degrees or less compared to those with college degrees. A college graduate is expected to live 7 years longer and is expected to earn more and by living longer will collect more benefits from social security than would a worker with just a high school degree. So even though Social Security pays higher benefits to poorer workers, many of those workers won't live long enough to collect.

There is also the problem of the growing disparity of income between the rich and the poor in the U.S. In 1983 a ceiling was set on income that would be subject to income taxes which covered 90% of all workers but since then more and more wages spilled over that ceiling and only 85% of all workers are covered today. So there are big social problems within the current system but even bigger financial problems.

As millions of baby boomers approach retirement it is an inevitable fact that under the current system the annual benefit surplus will shrink and disappear by the year 2018. One reason for this is the smaller worker per retiree ratio. In 1940 there were 42 workers for each person retiring so the taxes collected from them was more than enough to cover everyone's benefits. But since the baby boomers did not have nearly enough children to replace themselves the ratio is now 3-1 and by 2050 it will be 2-1. (Citizens for a Sound Economy Foundation)

Another reason for the dramatic decrease in that ratio is the increased life expectancy of people in the U.S. It went from 61 for men and 65 for women in 1940 to 74 for men and 79 for women in 2000. Advances in modern medicine have made this possible but at a high price with medic-care costs increasing very year. So people are living longer, collecting their benefit checks for more years, and needing higher benefits to cover their medical bills with the number of retirees increasing faster than the number of tax payers. This creates a huge problem that gets worse every year. Obviously just by looking at population demographics we could have predicted that this would happen years ago so why are we still dealing with this issue. Well in 1983 Alan Greenspan, our current Federal Reserve Chairman, suggested a system where the baby boomers would be taxed in advance to make sure that the government would have enough money to pay benefits by the time they retire. Since then American workers have paid about $1.8 trillion more into Social Security than it paid out in benefits and this year will pay 50% more into the system than will be paid out. So what happened to all that extra money? The government spent all of it. They did not lock away the money like they originally proposed but instead they borrowed from the surplus to pay the routine bills of the government hoping that they would be able to repay it with future tax revenues. (Johnston) So with social security in shambles what kind of solutions is our government offering right now?

There are several proposals being debated in Congress. President Bush's approach is called "progressive indexation" where by the year 2075 a low income workers would receive the same benefits as promised today but average and high income workers would get a 28% benefit cut. While this will continue to redistribute income to the poor it will also make social security increasingly irrelevant to middle income workers. Bush also wants to make some portion of social security put in private investment